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supervisor kim. >> this question is for prologis as well. so i very much understand how the real estate market is incredibly dynamic. in particular here in san francisco the market is very strong for real estate. even as the city negotiates for extensions of leases and renewals we are finding prices of buildings we have been previously leasing are going up tremendously. i understand the tightness of the market. i'm not as family with daly city or with the peninsula. i think i need more information to be convinced on this lease. san francisco i understand. * given the value of real estate and value of site you own, i'm curious as from your interest point you want to lock in the sfmta ten years. given the fact the value of this property could go up why it is in prologis's interest to lock in when you may find a tenant that
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has the ability to pay far more than the city of san francisco. >> that is a great question. it is an analysis we constantly do in our very high demand areas like the city of san francisco. but the decision i made was to provide the certainty of this investment. locking it into a longer term. most groups that we were talking with were interested in a longer term, because it is very challenging. if we decided to go for a shorter term, it is very tough to pinpoint exactly what the building is going to be worth in seven years or ten years. so that is the risk that we take in entering into anything long-term. it is the nature of what we do. we had to make that decision. >> i mean there's risk on both ends. the value could go up tremendously and you are locked into this deal with us at a cheaper rate or the value goes down but at least you have that
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certainty for your investors. >> correct. >> my second question was regarding the right of first negotiation, which i know that the agency negotiated very hard to get. i'm appreciative as being part of the deal. i'm curious from your end do you believe then in the next 10 to 20 years there will be interest to sell this parcel, given the current value of it to your entity? >> you know, i don't know that. it is a very difficult thing. because it is so hard to buy property, especially in san francisco where the industrial base has shrunk tremendously over the course of the last ten years, it was very hard to find any sort of building even close. the northern property line of this is the city of san francisco, so you never know. i mean, there was a number of buildings that sold in
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2008 after the market crashed that i never thought we would sell. to foresee that out in the future is too difficult to say. but i can tell you that it is very rare in our 4,000 buildings around the world that we offer or allow for any sort of negotiation right like this. >> thank you. actually my questions are then back to the sfmta. thank you very much. >> i had a number of questions. i do appreciate the e-mail we got last night, which addressed a number of them, including the leases that we terminated thus far in the past five or six years and some of the other questions we had as well. i'm curious, did we do a calculation of net present
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value of this lease in current dollars. >> yes, we have. three of us are real estate brokers on staff and have 20 or more years of experience in commercial. we have had one of the three brokers on staff do that analysis. to buy it today would be approximately $34 million, looking at what has gone on in the market. if we had to go out and find -- >> sorry, not the value of land. the net present value of the dollar amount of the lease. the value of the lease. >> yes, we have done that. we can get that information to you. i don't have that information at my finger tips. >> that would be great. what would also be helpful in looking at lease expirations an closed on that we no longer pay with private entities, it is helpful to get a sense of what has grown as well. so i know we ended lease with 25 but expanded an expensive lease with 1455 market, which i had a lot
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of questions about as well. never questioned the use. i always get where sfmta is coming and the need we have. whether it was for the center, 1455 mission or others. i'm getting a seasons of what we have closed out is great but it is good to get a sense of expansion and overall budget of real estate, what we pay in facilities. so it would be great if you could provide that to us as well. >> yes. >> the last thing is i was hoping that though the real estate master plan wasn't ready today we would still get something that would explain to us the overall need or assessment. is that something you can provide to us now? i assume being that you will release it in the next month, there has to be some level of information to provide to the board to give us understanding of how this fits in with the larger picture. >> thank you for the question.
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director risken mentioned was in the draft review of the process. i think we can cull out data to send it to you to specifically answer your question. i think what you are getting at, with inclusion of this property, which is assumed in the real estate study what are the additional needs of this. qualify dad that -- qualified data? >> yes. i want the picture of how this fits in but also the new leases we have taken on. that is what the real estate master plan s. it would have been great if this dove tailed together and we could like at the master plan and potentially approve this lease, getting a sense of the universe in terms of facilities. looking at the lease in and of itself, it is hard to support this without getting the larger context. all the additional information is helpful. it would be helpful to get
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as much as possible. >> let's see what we can do. we will try to get you something more concrete without the entire draft document. >> is there someone who can speak to us about real estate in the peninsula as well? i get that san francisco is tight. we, if anything, have reduced industrial real estate market and pdr. it is something i have a lot of concern for. it means a certain type of economy and jobs no longer exist. given the fact we have reducing industrial parcels, especially the site sfmta is looking at, we will have to look in other jurisdictions. that is less of an issue that we are looking at daly city then the question, what else is there. is this the only part, you know, large acre site. are there others we can look to purchase accept -- you know. are there other parcels that might cost us less. >> sure. let me turn this over to our brokerage, who knows
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very well the daly city market and san francisco market. >> hi. i'm james worth of colliers, san francisco. i will bring in randy keller. a couple things that came up in the notes. the building you are looking at leasing closed in july 2011, so it's been vacant over a year. the real estate market is in another planet from where it was in july 2011. that property is probably worth twice what they paid for it in the open marketplace, so that needs to be factored into your evaluations. the other thing supervisor campbell mentioned is you are stuck. you are not. you have a right to sublease. let's say you found something in five years and willing to buy it for a price you were willing to pay. you could sublet. i would bet prologis would be happy by to let you out.
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it will be worth more. you shouldn't feel you are stuck ten years there are sublease possibilitis in a marketplace getting harder and harder. this building is just over the daly city -- over the san francisco daly city line, literally on the line. there is a portion in san francisco. this was for dry foods operators, 250,000 on 12 acres. there is nothing that compares with it on the peninsula or san francisco. we have been -- i have been working sfmta over ten years. steve bell, your real estate contract manager, we looked at stuff in south city, 245 south spruce, which the airport had a long-term lease for the expansion that didn't occur. we had to relocation from the city. dbi beverages, golden brands to some who know, to
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175,000 people we couldn't find anything in san francisco that. is one of the constrictive things. the accusation by sales force is skewed. everybody looks at that and tries to comp the amount of money per square foot they paid is off the charts. i don't think it is reproducable. in daly city one of the reasons we were able to do this is that the huge development in visitacion valley, which was a redevelopment project, which is now off the table for now, i think one of the reasons we were able to acquire the leasehold there and not have any flak from daly city, planning department and supervisors in daly city is that is a dead piece of land, 20 acres that would take 10, 20 years to develop.
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fit was in development i think it would have been much more difficult to acquire this property, certainly not for the price you have an opportunity to lease it at. daly city and south city, i will give more to randy keller who has a lot more familiarity with that. maybe he will clarify. >> hi, i'm randy keller with cassidy turley. >> can i piggy-back on this question. we are on the subject and going to add to supervisor kim's question. we have property -- not we but there is property on geneva used to be, a cow palace and state entity. what are the efforts of looking at that as well as a site. a lot of land that is not being used for anything. in context of this question. >> the cow palace is in particular controlled by the state. they haven't been able to
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make a decision i guess in 50 years or longer. though every developer has looked, it really lends itself to housing of some sort. if you put a housing overlay on the same product you are looking at the lease, it is substantially high ner terms of value. that is really what happened to the cow palace if and when they can ever get anybody to agree, it will either go to a shopping center or mixed use shopping and residential project. there's no known number that i'm aware of of what they are asking for or whether they would do anything with it. that's the kind of people looking and after 2008 everything went dormant. everything has picked up in residential, commercial market. we are seeing numbers that approached what happened during the dot com era. tenants are trying to stay put. as you mentioned the rents have gone up so much in the
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last 18, 20 months, they have gone up some cases 30% to 40%. >> the gena drive-in, is that also under jurisdiction of the state? >> i think it is part of the same parcel but i'm not sure. i gave up years ago chasing it. it was impossible. >> i wonder if i can follow up. >> maybe we can let them finish answering first. >> okay? >> yes. >> i want to give a little background on myself, so you understand who i am. i'm a brokerage with cassidy turley, i work out of the burlingame office. i've been working with -- working on industrial deals on the peninsula and san francisco for 30 years, so i have a long history with the area. i think some of the things important for everyone to
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understand is lack of availability to find ten, 15 acres this the san francisco or peninsula area. it really is almost impossible to find. as james and sfmta have been looking for sites, you could pull out a parcel map and partially identify 10, 15, 20 sites that exist. they are that size. to accommodate the uses you are looking to replace. from a big picture standpoint you are dealing with a small supply of properties that could work. whether they are available or not. then an incredibly large demand for sites like that. from a land perspective, you know, sites -- there's a higher and better use for most of the sites. you look at the rehabilitation that's gone on in san francisco and all the new development, most
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are redeveloped for offices, research and development, biotech, you know, housing. there is a higher value than storing towed cars. you know, it is used as incredibly difficult to find. when you find an opportunity you will be one of multiple users, owners, developers who are interested in the site. one of the things that kirsten was talking about was the time frame. i was involved in the prologis site for the property. had they not reacted immediately, they would not have been in that position. unfortunately, the way city governments work, if the money is not there and you can't close with very short time frame of due diligence, it is not going
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to happen. even as you get down the peninsula there are multiple users who would jump at the opportunity to find, one, a building of this size. 250,000 square feet building. two, a building that size on two acres. most will sit on eight acres. so the extra land * ten is driving some of the values up. the transaction james is talking about with dbi was formerly amb building on spruce. they moved into a 177,000 foot portion of an industrial building the sfo -- you know, san francisco's airport operation had leased prior to. their rent is significant more than the rent on this deal is. so the value in the market is there. that deal was negotiated
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three, four years ago. that lack of supply is what drives value. that is anything in the world. whether it is a commodity, food, precious gems, whatever it is. that is what is driving the value. i understand the concept of let's take more time to find another site. it doesn't exist, that is the problem. that is the problem sfmta had with prologis, other attractive parties wanted this site. you could spend five more years and be in the same situation where you don't have the alternative. >> i know supervisor avalos is next but if you could reiterate that again. are you on the record saying there is no other site that the sfmta can use in daly city or the peninsula but this one? this is the only site that we can do this type of lease with.
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>> i would say at this point probably yes. >> at this point but not over the next two years. can you say that over the next two years? >> no one can guarantee what properties will come available down the road. as a broker for 30 years i can tell you if a property did become available in the next couple years, it would not be priced less. there would be -- there would probably be a ten to one ratio of people who want to buy it. if it is a land site there's a higher and better use than industrial. if it really an industrial site -- >> i'm assuming that this is zoned industrial, why it is not use ford higher value. you know the pdr in san francisco, i'm sure they would love for us to rezone it * for mixed use. this is where planning comes in, in terms of not
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every property owner can build to their highest value because we have a planning code. >> true. i understand. zoning is usually the lowest level on the map. so to upzone is usually a lot easier than to -- you are not going to put this in an industrial area. you can put retail offices in industrial zoned so there is a higher use typically to the land value. >> okay. thank you. supervisor avalos. >> thank you, chair chu. i already asked one of my questions. most of all, trying to see how the actually transaction had occurred. when they went on the market, who was the previous own other, how the mta worked towards pursuing the property, how it was
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that -- we have a longer process to buy property in terms of moving quickly but trying to see how they start this whole process of jockeying to actually own the property now that we lost out. would that be the real estate prices from the mta? so who was the previous owner of the property when it initially went on. >> a local small developer called d.r. stevens. >> what was the previous use before vacated in 2011. >> the u.s. postal service operated out there. >> how did the mta first hear about it? the broker contact the mta or the mta did the work -- >> we were looking and, like i say, brokers contact me every day. brokers contacted me before
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it was sold and after it was sold. >> what was your initial -- who was the brokerage who contacted you? >> james swarz regarding after it was sold. >> the broker works for the mta or a private -- >> their commission is paid through the seller. >> okay. and just wondering if the broker had contacted other groups to purchase as well, including prologis. >> i had done a deal with prologis, a dbi deal in south san francisco. in fact, when we were looking at so many different sites, to answer your question directly, the only person i called was sfmta because i felt a loyalty. i had worked with them before. i knew the process. supervisors campos' comment, yes, you have an
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intrinsic issue with responding to the marketplace. it is not just sfmta. it is the city and county. i think you are all away of that. i have been working with the city and county 20 years. you can't compete in a marketplace that is hot. you have people with money that want to close in 60, 90 days. nobody wants to wait. >> got to love the high seas of global capitalism. >> my suggestion would be -- there seems to be a vacuum in terms of i'm happy or we can look at the marketplace so everybody is aware of what you are looking at. this is one of the finest pieces of property here. the industrial base and why dbi moved is they can't afford -- can't find what they want and moving when possible to east bay because that is where the better deals are. >> just a question for the gentleman from prologis, how did you first come
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across this property was going to be available. >> it was literally knocking on doors. this property, as we have discussed so much today, is very unique. when you look at it from an aerial, simple things like google earth. i will say i need to own that building. the process took -- again, this started in 2008. and a series of letters that i wrote to the owner, showing up at his office to talk to him, telling him i knew his lease was coming vacant and we have a lot of customers so we will give you a lot of money for the building,ly take the risk of the vacant building and put one of our customers in it. so it was a long process. then as anything does in this market, as soon as we started negotiating, the word got out and the seller called me up and said if
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you want to buy this, you have to start your due diligence and close -- i think we closed in 45 days. it was aggressive and risky to do that. so it was that nimbleness was how we were able to do that. had that seller gone and provided a big marketing effort, they would have attracted a lot more users. probably a lot higher price. >> can you talk about your work of your company in the bay area. do you actually have leases with other government entities. >> so in the bay area, to be clear, prologis, we were founded as amb in san francisco about 29 years ago. our founder is still the ceo of our company. we combined. we merged with our biggest
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rival actually about 18 months ago and took their name. so it was a merger of equals. two big companies combining. we owned 22 million square feet in the bay area. we owned one building in the city of san francisco. that is how tough it is to buy property in san francisco. that is a ground lease we had with the port of san francisco at pier one. we moved our headquarters there about ten years ago. the port operators out of the embarkadero side and we are on the water side. we own 1.4 million square feet on the peninsula in south san francisco. and, again, very challenging to find properties in that market. then the east bay and central value and south bay we own a lot of properties as well. sorry, to answer your question. on the government -- >> you lease from the port for headquarters.
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>> lease this from the port. put the money in, work with the port and port then leases back the office space from us. >> any other arrangements where you own the property and are leasing to other government entities within the bay area to expand other places, like this lease we have before us with the mta. >> i can't answer that question right now. there's no -- i could answer it this way. i would be bold enough to say, yes, we have leases with other government entities just because we have so much property. but i can't think of anything in the bay off the top of my head. we have other people on staff that focus on the 20 million square feet we already own. they would know the in's and out's of that better than i would. >> okay. thank you. >> thank you. supervisor campos. >> thank you. i was wondering if i could ask the gentleman or the brokerage, if you don't mind coming up, please.
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thank you. i was wondering if you could walk us through exactly when it was that you first learned about this property. just to clarify was it before it was sold or after? >> no, i have been aware of the property because it is one of the prominent properties on the peninsula. in fact, when the u.s. postal service was there for the national division, this san aside, they put over 20 million into that property to make it specific for their uses. we all knew that at some point that lease might come up, so everybody in the business calls and says, hey, what is going on. would you sell or lease? everybody is asking those questions of owners. and in july of 2011, which is when pro logic acquired the property, i talked to them in august and in september i was talking to sfmta saying, look. here is an opportunity. i know you'd like to own it
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but that was not something possible before. it was not openly marketed as a for sale property. when they closed on it i went to prologis and said, hey, i think i have a possibility. if you are family with land on pier 70. correct me if i'm wrong but as i understand it that land use is not allowed on pier property. that is one of the reasons we couldn't get portland to do it somewhere else. in september we started a dialogue. >> i guess my question is before that. did you approach the owner of the property before prologis acquired it about selling it to the city? >> no. years ago i talked to them about would they sell it. there wasn't interest. they had a lease with u.s. postal service on it. >> when was the last time they sold it to prologis you spoke to them? >> probably been three years. >> that is kind of my point
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in a way, right. that we had not approached them in three years about possibly selling this property to the city. the only instance that the city -- the mta gets involved again is three years later when it's already been sold. >> three years earlier -- to correct you, it was not available. there was no interest on the part. i think what drove the interest on ownership is they lost their lease with the postal service. so the property's been vacant better part of two years. >> did we approach them once we knew that lease was going to be lost. did we approach them then? >> i don't know. i can't answer that question. >> well, again, my point is, how do we know that there aren't properties out there that are not on the market, the way this property wasn't on the

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October 3, 2012 12:00pm-12:30pm PDT

TOPIC FREQUENCY Sfmta 5, Prologis 4, Daly City 4, U.s. 3, Randy Keller 3, Campos 2, Cassidy Turley 2, Avalos 2, South San Francisco 2, The City 2, South City 2, Mta 2, Swarz 1, D.r. Stevens 1, Kim 1, Kirsten 1, Steve Bell 1, Daly 1, Campbell 1, Risken 1
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